SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
COMMISSION FILE NUMBER 1-13792
GLOBAL DIRECTMAIL CORP
(Exact name of registrant as specified in its charter)
Delaware 11-3262067
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
22 Harbor Park Drive
Port Washington, New York 11050
(Address of registrant's principal executive offices)
(516) 625-1555
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
The number of shares outstanding of the registrant's Common Stock as of May 10,
1999 was 35,856,790.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GLOBAL DIRECTMAIL CORP
Condensed Consolidated Balance Sheets
(IN THOUSANDS)
March 31, December 31,
1999 1998
---------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 45,667 $ 42,029
Short term investments 798 5,050
Accounts receivable, net 175,892 154,516
Inventories 133,694 129,966
Prepaid expenses and other current assets 29,823 28,382
---------- -----------
Total current assets 387,292 359,943
PROPERTY, PLANT AND EQUIPMENT, net 34,753 33,988
GOODWILL, net 71,263 56,612
OTHER ASSETS 3,942 3,896
--------- ----------
TOTAL $ 495,832 $ 454,439
========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 200,214 $ 162,636
Current portion of long term debt 2,574 2,681
--------- ----------
Total current liabilities 202,788 165,317
--------- ----------
LONG TERM DEBT 2,308 2,493
--------- ----------
SHAREHOLDERS' EQUITY:
Preferred stock -- --
Common stock, par value $.01 per share, issued 38,231,990 shares,
outstanding 35,856,790 and 36,128,090 shares 382 382
Additional paid-in capital 176,743 176,743
Common stock in treasury at cost - 2,375,200 and 2,103,900 shares (32,693) (28,604)
Accumulated other comprehensive income (2,915) (348)
Retained earnings 149,219 138,456
--------- ----------
Total shareholders' equity 290,736 286,629
--------- ----------
TOTAL $ 495,832 $ 454,439
========= ==========
See notes to condensed consolidated financial statements.
GLOBAL DIRECTMAIL CORP
Condensed Consolidated Statements of Income
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- ----------------------------------------------------------------------------------
Three Month
Periods ended
March 31,
1999 1998
(Unaudited)
NET SALES $ 421,651 $ 358,358
COST OF SALES 342,339 282,989
--------- ---------
GROSS PROFIT 79,312 75,369
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 62,141 55,291
--------- ---------
INCOME FROM OPERATIONS 17,171 20,078
INTEREST AND OTHER INCOME 330 842
--------- ---------
INCOME BEFORE INCOME TAXES 17,501 20,920
PROVISION FOR INCOME TAXES 6,738 8,055
--------- ---------
NET INCOME $ 10,763 $ 12,865
========= =========
Net income per common share:
Basic $ .30 $ .34
========= =========
Diluted $ .30 $ .34
========= =========
Common and common equivalent shares outstanding:
Basic 36,064 38,232
========= =========
Diluted 36,117 38,351
========= =========
See notes to condensed consolidated financial statements
GLOBAL DIRECTMAIL CORP
Condensed Statement of Consolidated Shareholders' Equity
(IN THOUSANDS)__________________________________________________________________
Accumulated
COMMON STOCK Additional Other Treasury
Number of Paid-in Retained Comprehensive Stock
SHARES AMOUNT CAPITAL EARNINGS INCOME AT COST
BALANCES, JANUARY 1, 1998 36,128 $ 382 $ 176,743 $ 138,456 $ (348) (28,604)
Change in cumulative translation adjustment (2,567)
Purchase of treasury shares (271) (4,089)
Net income 10,763
-------- ------- ---------- --------- -------- --------
BALANCES, MARCH 31, 1999 35,857 $ 382 $ 176,743 $149,219 $ (2,915) $ (32,693)
======== ======= ========== ========= ======== ========
See notes to consolidated financial statements.
GLOBAL DIRECTMAIL CORP
Condensed Statements of Consolidated Cash Flows
(IN THOUSANDS)
THREE-MONTH PERIOD
ENDED MARCH 31,
1999 1998
----------------------------
(UNAUDITED)
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income $ 10,763 $ 12,865
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization, net 2,393 1,882
Provision for returns and doubtful accounts 1,820 1,943
Changes in certain assets and liabilities:
Accounts receivable (19,506) (18,254)
Inventories (654) (2,631)
Prepaid catalog and other prepaid expenses (1,078) (3,499)
Accounts payable and accrued expenses 19,634 22,867
----------- ----------
Net cash provided by operating activities 13,372 15,173
----------- ----------
CASH FLOWS PRIVIDED BY (USED IN) INVESTING ACTIVITIES:
Net change in short-term investments 4,252 922
Investments in property, plant and equipment (2,443) (3,089)
Acquisitions, net of cash acquired (8,398) (895)
---------- ------------
Net cash used in investing activities (6,589) (3,062)
---------- ------------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Repayments of long-term borrowings (160)
Purchase of treasury shares (4,089)
----------- -----------
Net cash used in financing activities (4,249)
---------- -----------
EFFECTS OF EXCHANGE RATES ON CASH 1,104 418
------------ -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,638 12,529
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 42,029 43,432
---------- ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 45,667 $ 55,961
========== =============
See notes to condensed consolidated financial statements.
GLOBAL DIRECTMAIL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
The accompanying consolidated financial statements include the accounts of
Global DirectMail Corp and its wholly-owned subsidiaries (collectively, the
"Company" or "Global"). The Company is a corporate supplier of personal
computers (PCs), notebook computers, computer related products, industrial
products and office products in North America and Europe. Global markets
these products through an integrated system of direct mail catalogs, a
network of major account sales representatives and proprietary "e-commerce"
Internet sites.
2. BASIS OF PRESENTATION
Net income per common share - basic was calculated based upon the weighted
average number of common shares outstanding during the respective periods
presented. Net income per common share - diluted was calculated based upon
the weighted average number of common shares outstanding and included the
equivalent shares for dilutive options outstanding during the respective
periods.
All intercompany accounts have been eliminated in consolidation.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all normal and recurring
adjustments necessary to present fairly the financial position of the
Company as of March 31,1999 and the results of operations for the three
months ended March 31, 1999 and 1998, cash flows for the three months ended
March 31, 1999 and 1998 and changes in stockholders' equity for the three
months ended March 31, 1999. The December 31, 1998 consolidated balance
sheet has been extracted from the audited consolidated financial statements
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
These condensed consolidated financial statements should be read in
conjunction with the Company's audited consolidated financial statements as
of December 31, 1998 and for the period then ended. The results for the
three months ended March 31, 1999 are not necessarily indicative of the
results for an entire year.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31,
1998
Net sales for the three months increased 18% to $421.7 million compared to
$358.4 million in the year ago quarter. The increase of $63.3 million was
primarily attributable to the purchase of Simply Computers Ltd. ("Simply")
in February 1999, increased demand for PCs and increased sales generated by
the Company's Internet sites. The number of orders increased 8% to 1.1
million compared to the year ago quarter, with a 9% increase in the average
order value to $380. Sales during the quarter from North American
operations increased 9% to $303.9 million compared to $278.9 million in the
first quarter of 1998. European sales increased 48% to $117.7 million
(including approximately $21 million for Simply) compared to $79.4 million
in the year ago quarter. There was negligible effect on European sales due
to changes in exchange rates.
Gross profit increased by $3.9 million or 5% to $79.3 million compared to
$75.4 million in the year ago quarter, with gross profit as a percentage of
net sales decreasing to 18.8% compared to 21.0% a year ago. The decrease in
the gross profit percentage was primarily due to a shift in the Company's
product mix, continuing the recent trend of large increases in the sales of
PCs, notebook computers and brand name products, which generally have a
lower gross profit percentage, and a relatively lower sales contribution
from higher-margin industrial products.
Selling, general and administrative expenses for the quarter increased by
$6.9 million or 12% to $62.1 million compared to $55.3 million in the first
quarter of 1998. This increase was primarily the result of continuing
investments for expansion of the relationship marketing sales
organizations, investments in the Company's "e- commerce" Internet business
and the inclusion of Simply. This was partially offset by decreased catalog
spending, increased vendor supported advertising and the overall leveraging
of selling, general and administrative expenses over the larger sales base.
Selling, general and administrative expenses as a percentage of sales
improved to 14.7% compared to 15.4% in the year ago quarter.
Income from operations for the quarter decreased by $2.9 million to $17.2
million from $20.1 million in the year ago quarter. Income from operations
as a percentage of net sales decreased to 4.1% from 5.6% in the year ago
quarter. Operating income in North America decreased by 19% to $13.2
million from $16.3 million in the year ago quarter. Income from operations
in Europe increased to 5% to $4.0 million from $3.8 million in the year ago
quarter.
Net income for the quarter was $10.8 million, or $.30 per basic and diluted
share, compared to $12.9 million, or $.34 per basic and diluted share in
the first quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital needs are to finance working capital for
sales growth, investments in property, equipment and information technology
and business acquisitions. Operating cash flow financed the Company's
working capital, acquisition and capital expenditure needs. For the quarter
ended March 31, 1999, the Company generated cash from operating activities
of $13.4 million compared to $15.2 million for the year ago quarter. The
decrease resulted from lower net income in 1999. Cash was used in investing
activities, primarily for the purchase of Simply, and was also used in
financing activities for the purchase of treasury shares. For the three
months ended March 31, 1999, cash and cash equivalents increased by $3.6
million. The Company has access to adequate funds from short-term and
long-term borrowing facilities.
YEAR 2000 COMPLIANCE/EUROPEAN COMMON CURRENCY
For information regarding the Company's Year 2000 compliance plans and the
implications to the Company from the adoption of a European common
currency, reference is made to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998, Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations.
FORWARD LOOKING STATEMENTS
This report contains forward looking statements within the meaning of that
term in the Private Securities Litigation Reform Act of 1995 (Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934). Additional written or oral forward looking statements may be
made by the Company from time to time, in filings with the Securities
Exchange Commission or otherwise. Statements contained in this report that
are not historical facts are forward looking statements made pursuant to
the safe harbor provisions referenced above. Forward looking statements may
include, but are not limited to, projections of revenue, income or loss and
capital expenditures, statements regarding future operations, financing
needs, compliance with financial covenants in loan agreements, plans for
acquisition or sale of assets or businesses and consolidation of operations
of newly acquired businesses, and plans relating to products or services of
the Company, assessments of materiality, predictions of future events and
the effects of pending and possible litigation, as well as assumptions
relating to the foregoing. In addition, when used in this discussion, the
words "anticipates", "believes", "estimates", "expects", "intends", "plans"
and variations thereof and similar expressions are intended to identify
forward looking statements.
Forward looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified based on
current expectations. Consequently, future events and actual results could
differ materially from those set forth in, contemplated by, or underlying
the forward looking statements contained in this report. Statements in this
report, particularly in "Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations", and the Notes to
Consolidated Financial Statements describe certain factors, among others,
that could contribute to or cause such differences. Other factors that
could contribute to or cause such differences include, but are not limited
to, unanticipated developments in any one or more of the following areas:
(i) the Company's ability to manage rapid growth as a result of internal
expansion and strategic acquisitions, (ii) the effect on the Company of
volatility in the price of paper and periodic increases in postage rates,
(iii) the operation of the Company's management information systems
including the costs and effects associated with the year 2000 date change
problem, (iv) the general risks attendant to the conduct of business in
foreign countries, including currency fluctuations associated with sales
not denominated in United States dollars, (v) significant changes in the
computer products retail industry, especially relating to the distribution
and sale of such products, (vi) competition in the PC, notebook computer,
computer related products, office products and industrial products markets
from superstores, direct response (mail order) distributors, mass
merchants, value added resellers, the Internet and other retailers, (vii)
the potential for expanded imposition of state sales taxes, use taxes, or
other taxes on direct marketing companies, (viii) the continuation of key
vendor relationships including the ability to continue to receive vendor
supported advertising, (ix) timely availability of existing and new
products, (x) risks due to shifts in market demand and/or price erosion of
owned inventory, (xi) borrowing costs, (xii) changes in taxes due to
changes in the mix of U.S. and non-U.S. revenue, (xiii)pending or
threatened litigation and investigations and (xiv) the availability of key
personnel, as well as other risk factors which may be detailed from time to
time in the Company's Securities and Exchange Commission filings.
Readers are cautioned not to place undue reliance on any forward looking
statements contained in this report, which speak only as of the date
hereof. The Company undertakes no obligation to publicly release the result
of any revisions to these forward looking statements that may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unexpected events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Company is exposed to market risks, which include changes in U.S. and
international interest rates as well as changes in currency exchange rates
as measured against the U.S. dollar and each other. Global attempts to
reduce these risks by utilizing certain derivative financial instruments.
The value of the U.S. dollar affects the Company's financial results.
Changes in exchange rates may positively or negatively affect Global's
sales (as expressed in U.S. dollars), gross margins, operating expenses and
retained earnings. The Company may engage in hedging programs aimed at
limiting in part the impact of certain currency fluctuations. Using
primarily forward exchange and foreign currency option contracts, Global,
from time to time, hedges certain of its assets that, when remeasured
according to generally accepted accounting principles, may impact the
Statement of Consolidated Income. These hedging activities provide only
limited protection against currency exchange risks. Factors that could
impact the effectiveness of the Company's hedging programs include accuracy
of sales forecasts, volatility of the currency markets, availability of
hedging instruments and the credit-worthiness of the parties which have
entered into such contracts with the Company. All currency contracts that
are entered into by Global are for the sole purpose of hedging an existing
or anticipated currency exposure, not for speculative or trading purposes.
In spite of Global's hedging efforts to reduce the effect of changes in
exchange rates against the U.S. dollar, the Company sales or costs could
still be adversely affected by changes in those exchange rates.
As of March 31,1999, the Company had no outstanding forward exchange
contracts.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
The Board of Directors of the Company has adopted a resolution proposing to
the Company's stockholders that the corporate name of the Company be
changed to Systemax Inc. The Board of Directors has recommended the name
change to better reflect the Company's current status as a marketer of
computers and computer products and to enhance awareness of the Company and
its Systemax(TM) brand of build-to-order PCs. Under Delaware law, a change
in the corporate name requires an amendment to the Company's Certificate of
Incorporation which can be effectuated only upon a resolution of the Board
of Directors and a vote in favor of the amendment by the holders of a
majority of the outstanding shares of the Common Stock entitled to vote
thereon. Accordingly, a motion will be presented at the Company's annual
meeting of stockholders on May 18, 1999 to amend Article FIRST of the
Company's Certificate of Incorporation to read "The name of the corporation
is "Systemax Inc."".
ITEM 6. EXHIBITS
(a) Exhibits.
3.1 Certificate of Incorporation. (Incorporated herein by reference to
Exhibit 3.1 to the Company's Registration Statement on Form S-1, File
No. 33-92052).
3.2 By-laws. (Incorporated herein by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1, File No. 33-92052).
4.1 Stockholders Agreement. (Incorporated herein by reference to the
Company's quarterly report on Form 10-Q for the quarterly period ended
June 30, 1995).
4.2 Specimen Stock Certificate. (Incorporated herein by reference to
Exhibit 4.2 to the Company's Registration Statement on Form S-1, File
No. 33-92052).
10.1 Lease Agreement dated as of April 20, 1999 between the Company and The
Shawnee Ridge Joint Venture (new Georgia facility).
27 Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the three
months ended March 31, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GLOBAL DIRECTMAIL CORP
Date: May 14, 1999 By: /S/ RICHARD LEEDS
------------------------------------
Richard Leeds
Chairman and Chief Executive Officer
By: /S/ STEVEN GOLDSCHEIN
-----------------------------------
Steven Goldschein
Senior Vice President and Chief
Financial Officer
EXHIBIT INDEX
10.1 Lease Agreement dated as of April 20, 1999 between the Company and The
Shawnee Ridge Joint Venture (new Georgia facility)
27 Financial Data Schedule